EXHIBIT 99.2
SUBORDINATION AGREEMENT
(NationsBank, N.A. )
This Subordination Agreement dated as of December 30, 1998 ("Agreement"),
is made by __________________________________________ ("Subordinated Creditor"),
and CASTLE DENTAL CENTERS, INC., a Delaware corporation ("Debtor"), in favor of
NATIONSBANK, N.A. and the other banks under the Credit Agreement referred to
below (collectively, "Senior Creditor").
INTRODUCTION
Reference is made to the Amended and Restated Credit Agreement dated as of
December 18, 1998 (as may be modified from time to time, the "Credit Agreement")
among NationsBank, N.A., as agent, the Debtor and Senior Creditor. It is a
condition precedent to the Senior Creditor's permitting the Debtor to incur the
indebtedness represented by the Subordinated Note (as defined below) that the
Subordinated Creditor enter into this Agreement. In consideration of the
foregoing and for other good and valuable consideration, the Subordinated
Creditor, the Debtor, and the Senior Creditor hereby agree as follows:
Section 1. DEFINITIONS. The following terms shall have the following means
"Event of Default" means any "Default" or "Event of Default" as defined
in, and which may occur under the Credit Agreement.
"Loan Documents" shall have the meaning specified by the Credit Agreement.
"Senior Debt" means (a) all principal, interest, fees, reimbursements,
indemnifications, and other amounts now or hereafter owed by the Debtor to
Senior Creditor under the Credit Agreement, the Loan Documents, and any other
instrument or agreement related thereto and (b) any increases, extensions, and
rearrangements of the foregoing obligations under any amendments, supplements,
and other modifications of the documents and agreements creating the foregoing
obligations.
"Subordinated Debt" means all present and future indebtedness, liabilities
and obligations owed by the Debtor to the Subordinated Creditor pursuant to the
terms of the Subordinated Note or in connection with obligations of Debtor
relating to the stock which Subordinated Creditor receives from Debtor as
partial consideration for the acquisition of the assets of the Subordinated
Creditor's dental business, including, without limitation, pursuant to Section
3.5 of that certain Asset Purchase Agreement dated as of December 30, 1998, by
and among, Debtor, the Subordinated Creditor and the other parties thereto
("Purchase Agreement"), Senior Creditor hereby agrees that all Assumed
Obligations (as defined in the Purchase Agreement), including Debtor's
obligation to indemnify and
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hold harmless the Subordinated Creditor with respect to such Assumed
Obligations, are expressly excluded from the definition of Subordinated Debt.
"Subordinated Note" means all promissory notes made by the Debtor and
payable to the Subordinated Creditor pursuant to the terms of the Purchase
Agreement, as the same may be increased, extended, rearranged, amended,
supplemented, and otherwise modified from time to time in accordance with this
Agreement.
Section 2. TERMS OF SUBORDINATION. Unless and until the Senior Debt shall
have been irrevocably paid in full and the Senior Creditor shall have no
commitment to extend further Senior Debt, the payment and performance of the
Subordinated Debt is hereby made expressly subordinate and junior in right of
payment and performance to the prior payment and performance of all obligations
and liabilities under the Senior Debt to the extent and in the manner set forth
in this Section 2.
2.1 LIMITATION ON PAYMENTS.
(a) No payment or prepayment of any sum on the Subordinated Debt,
whether by acceleration or otherwise, shall be made, if at the time of such
payment, prepayment, or immediately after giving effect thereto (i) there shall
exist a default in the payment or prepayment with respect to any of the Senior
Debt, or immediately after giving effect thereto, there shall exist a default in
the payment or prepayment of the principal or interest with respect to any of
the Senior Debt or (ii) there shall have occurred, or after giving effect to
such payment there shall occur, an Event of Default (other than an Event of
Default in the payment or prepayment of principal or interest with respect to
any of the Senior Debt) permitting the Senior Creditor to accelerate the
maturity thereof (with notice, lapse of time, or both) and such Event of Default
shall not have been cured to the satisfaction of or waived by the Senior
Creditor.
(b) If at any time there shall occur an Event of Default, the
Subordinated Creditor shall not be entitled to receive any payment on the
Subordinated Debt before the earlier of (i) cure of the Event of Default to the
satisfaction of, or waiver thereof by, the Senior Creditor or (ii) the
irrevocable payment in full of the Senior Debt and the termination of all
commitments to extend Senior Debt.
(c) In the event that any Subordinated Debt is declared due and
payable before their expressed maturity because of the occurrence of an event of
default (under circumstances when the provisions of the foregoing paragraphs (a)
or (b) are not applicable), the Senior Creditor shall be entitled to receive
payment in full of all principal, interest, and other sums outstanding in
connection with the Senior Debt before the Subordinated Creditor is entitled to
receive any payment on account of such Subordinated Debt.
(d) Any payments received by the Subordinated Creditor after the
Subordinated Creditor has knowledge of a Default or Event of Default shall be
held by the Subordinated Creditor
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in trust for the benefit of the Senior Creditor and shall be immediately turned
over to the Senior Creditor in the form received (together with any necessary
endorsements) for application to the Senior Debt until all outstanding Senior
Debt has been irrevocably paid in full.
2.2 REMEDY BLOCKAGE. Without detracting from or modifying the rights and
obligations provided in Section 2.1 above, during certain periods specified
below (each a "Remedy Blockage Period"), the holders of the Subordinated Debt
will not have any of the following rights (a "Remedy Blockage"): (i) to demand,
xxx for or take from or on behalf of the Debtor, by set-off or in any other
manner, any moneys which may then or thereafter be owing by the Debtor on the
Subordinated Debt, (ii) to commence, or to join with any Person in commencing,
any suit, action or proceeding against the Debtor (A) to enforce payment of or
to collect all or any portion of the Subordinated Debt or (B) to commence
judicial enforcement of any of the rights and remedies under the documents or
instruments governing the Subordinated Debt or applicable law, (iii) to
accelerate the principal of or interest on or any other amount under the
Subordinated Debt, or (iv) to commence, or to join with any Person in
commencing, against Debtor or any of its property a bankruptcy, reorganization,
insolvency, receivership or other similar proceeding (except that the holders of
the Subordinated Debt may (1) charge but not collect interest at a default rate,
(2) accelerate the Subordinated Debt after the Senior Debt is accelerated and
(3) give notices and file law suits to prevent the running of the relevant
statute of limitations, and with the joinder of the Senior Creditor pursue
rights in bankruptcy, reorganization, insolvency, receivership, or other similar
proceedings, and otherwise protect legal rights)
The Remedy Blockage Periods shall be as follows:
(a) if there shall exist a default in the payment of any amounts
owing under the Subordinated Debt (a "Payment Default"), the Remedy Blockage
shall remain in effect for a Remedy Blockage Period ending 180 days after agent
for the Senior Debt receives written notice from any holder of the Subordinated
Debt (or any designed representative thereof) of the occurrence of the Payment
Default, and
(b) if there shall exist any default with respect to the
Subordinated Debt other than a Payment Default, the Remedy Blockage Period shall
remain in effect until such default is cured or waived or the Senior Debt is no
longer outstanding; provided, however, that if a Payment Default is also in
effect, the Remedy Blockage Period pursuant to this Section 2.2(b) shall
terminate when the Remedy Blockage Period under Section 2.2(a) has expired.
2.3 SUBORDINATION ON LIQUIDATION. Upon any receivership, insolvency
proceeding, bankruptcy proceeding, assignment for the benefit of creditors,
reorganization, arrangement with creditors, sale of assets for creditors,
dissolution, liquidation, or marshalling of the assets of the Debtor (each, a
"Bankruptcy Event"), all amounts due with respect to the Senior Debt shall be
irrevocably paid in full before the Subordinated Creditor shall be entitled to
collect or receive any payment with respect to the Subordinated Debt. Any
payments received by the Subordinated Creditor in such proceedings shall be held
by the Subordinated Creditor in trust for the benefit of the
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Senior Creditor and shall be immediately turned over to the Senior Creditor in
the form received (together with any necessary endorsements) for application to
the Senior Debt until all outstanding Senior Debt has been irrevocably paid in
full.
2.4 SUBORDINATION OF LIENS. The Subordinated Creditor will not create,
assume, or suffer to exist any lien, security interest, or assignment of
collateral securing the repayment of the Subordinated Debt. Any such judgment
lien, and any other lien, security interest, or assignment existing in violation
of the foregoing shall be fully subordinate to any lien, security interest, or
assignment in favor of the Senior Creditor which secures any of the Senior Debt.
At the request of the Senior Creditor, the Subordinated Creditor and the Debtor
will take any and all steps necessary to fully effect the release of any such
lien, security interest, assignment, or collateral.
2.5 FURTHER ASSURANCES. The Subordinated Creditor and the Debtor agree to
execute any and all other instruments requested by the Senior Creditor to
further evidence the subordination of the Subordinated Debt to the Senior Debt
as herein provided.
2.6. SUBROGATION. After all Senior Debt is irrevocably paid in full and
until the Subordinated Note is irrevocably paid in full, the Subordinated
Creditor shall be subrogated to the rights of holders of the Senior Debt to
receive distributions applicable to Senior Debt to the extent that distributions
otherwise payable to the Subordinated Creditors have been applied to the payment
of the Senior Debt. A distribution made under this Section 2, directly or
indirectly, to holders of Senior Debt that otherwise would have been made to the
Subordinated Creditors is not, as between the Debtor and the Subordinated
Creditors, a payment by the Debtor on the Subordinated Note.
2.7 RELATIVE RIGHTS. This Section 2 defines the relative rights of the
Subordinated Creditors and the Senior Creditor. Nothing in this Agreement shall:
(a) impair, as between the Debtor and the Subordinated Creditors, the
obligation of the Debtor, which is absolute and unconditional, to pay all of the
obligations under the Subordinated Note in accordance with its terms; or
(b) affect the relative rights of the Subordinated Creditors and creditors
of the Debtor other than their rights in relation to the Senior Creditor.
Section 3. SUBORDINATION ABSOLUTE. This is an irrevocable agreement of
subordination and the Senior Creditor may, without notice to any of the parties
hereto and without impairing or releasing the obligations of the Debtor and the
Subordinated Creditor hereunder, (a) create Senior Debt by extending credit
under the Credit Agreement; (b) change the terms of or increase the amount of
the Senior Debt by increasing, extending, rearranging, amending, supplementing,
or otherwise modifying any of the Loan Documents or other instruments or
agreements creating Senior Debt; (c) sell, exchange, release, or otherwise deal
with any collateral securing any Senior Debt; (d) release anyone, including the
Debtor or any guarantor, liable in any manner for the payment or collection of
any Senior Debt; (e) exercise or refrain from exercising any rights against the
Debtor or any other Person;
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and (f) apply any sums received by any Senior Creditor, from whatever source, to
the payment of the Senior Debt.
Section 4. PROVISIONS REGARDING SUBORDINATED DEBT.
4.1 There may be no increases, extensions, rearrangements, amendments,
supplements, or other modifications to the Subordinated Note which increase the
principal amount of, increase the interest rate payable on, or accelerate the
scheduled principal and interest payments on the Subordinated Note without the
prior written permission of the Senior Creditor.
4.2 The Subordinated Creditor will cause all Subordinated Debt to be
evidenced by a note, debenture, instrument, or other writing evidencing the
Subordinated Debt and will inscribe a statement or legend thereon to the effect
that such note, debenture, instrument, or other writing is subordinated to the
Senior Debt in favor of the Senior Creditor in the manner and to the extent set
forth in this Agreement.
4.3 The Subordinated Creditor shall xxxx the books of Subordinated
Creditor to show that the Subordinated Debt is subordinated to the Senior Debt
in the manner and to the extent set forth in this Agreement and cause all
financial statements of the Subordinated Creditor hereafter prepared for
delivery to any person to make specific reference to the provisions of this
Agreement.
4.4 The Subordinated Creditor shall not assign or otherwise transfer to
any other person any interest in the Subordinated Debt unless the Subordinated
Creditor causes the assignee or other transferee to execute and deliver to the
Senior Creditor a subordination agreement in substantially the form of this
Agreement or otherwise acknowledges to the reasonable satisfaction of the Senior
Creditor the subordination of the Subordinated Debt in accordance with this
Agreement.
Section 5. MISCELLANEOUS.
5.1 The Debtor shall reimburse the Senior Creditor for all reasonable
expenses of the Senior Creditor, including reasonable charges and disbursements
of legal counsel for the Senior Creditor, in connection with the execution,
amendment, modification, waiver, and interpretation of this Agreement, and the
administration, preservation, and enforcement of any rights of the Senior
Creditor under this Agreement. The Debtor shall indemnify the Senior Creditor
against all claims, liabilities, damages, and expenses in connection with any
litigation or proceeding relating to this Agreement, INCLUDING CLAIMS CAUSED BY
THE SENIOR CREDITOR'S OWN NEGLIGENCE except as a result of the Senior Creditor's
gross negligence or willful misconduct. The Senior Creditor is hereby authorized
to setoff and apply any obligations owed by the Senior Creditor to the Debtor
against any obligations of the Debtor under this Agreement. The provisions of
this paragraph shall survive termination of this Agreement.
5.2 This Agreement shall be governed by the laws of the State of Texas. If
any provision in this Agreement is held to be unenforceable, such provision
shall be severed and the remaining
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provisions shall remain in full force and effect. The Senior Creditor's remedies
under this Agreement shall be cumulative, and no delay in enforcing this
Agreement shall act as a waiver of the Senior Creditor's rights hereunder. The
provisions of this Agreement may be waived or amended only in a writing signed
by all of the parties hereto. This Agreement shall bind the Subordinated
Creditor and the Debtor and their successors and assigns and shall inure to the
benefit of the Senior Creditor and its successors and assigns. This Agreement
may be executed in multiple counterparts which together shall constitute one and
the same agreement. Unless otherwise specified, all notices provided for in this
Agreement shall be in writing, delivered to the following addresses:
If to the Subordinated Creditor:
If to the Debtor:
Castle Dental Centers, Inc.
Attn: Xxxx X. Xxxxxx, Xx
0000 Xxxx Xxx Xxxxxxxxx
Xxxxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
If to the Senior Creditor:
NationsBank, N.A.
Attn: Xxxxxxxx Xxxxxxxx
000 Xxxxxxxxx, 0xx Xxxxx
Xxxxxxx, Xxxxx 00000
Telephone: 000-000-0000
Telecopier: 000-000-0000
or to such other address as shall be designated by one party in writing to the
other parties. Notice sent by telecopy shall be deemed to be given and received
when receipt of such transmission is acknowledged, and delivered notice shall be
deemed to be given and received when receipted for by, or actually received by,
an authorized officer of the receiving party.
THIS WRITTEN AGREEMENT AND THE RELATED CREDIT DOCUMENTS REPRESENT THE FINAL
AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
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THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED as of the date first above written.
NationsBank, N.A.
By:____________________________
Xxxxxxxx Xxxxxxxx
Senior Vice President
CASTLE DENTAL CENTERS. INC.
By:____________________________
Xxxx X. Xxxxx, Vice President
_______________________________
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